Fixed Wireless Business

Northwest Communications, Growing Against the Grain

A small, local telephone company proves that it can do it all in Iowa—voice, dial-up, cable, and wireless—you name it, Northwest Communications provides it.

by Gerry Blackwell [August 27, 2002]

All over America you'll find little pockets, usually in rural areas, where big telephone companies never held sway. Instead, small firms served their local communities, holding out for years against the giant Regional Bell Operating Companies (RBOCs) that surrounded them.

Many of these firms still operate. Northwest Communications in northwest Iowa, now an Internet service provider and wireless ISP as well as a telephone company, is one.

Like other local exchange carriers Northwest went into the ISP business (in 1995) to meet demand from existing customers, initially offering dial-up services. Unlike most other small, co-operative LECs, however, it has ridden the success of its Internet operations to expand well beyond its original service area.

When it was just a phone company, Northwest did business in a 23 square mile oasis around tiny Havelock, where it's headquartered. Now it operates across thousands of square miles of northwest Iowa, in some 60 communities altogether.

Using wireless technology to offer high-speed service, which the company has been doing since 2000, was critical to the success of this expansion.

Northwest does offer digital subscriber line (DSL) services in some of its own telephone exchange areas. It even offers cable modem service in a few communities, piggy-backing on Spencer Municipal Utilities, a municipally-owned open-systems cable operator. But wireless has been its main play in the high-speed Internet access market.

Today the company offers wireless service in 22 communities from about 30 tower sites. It has approximately 360 wireless customers. That still represents a small percentage (4.3 percent) of the total—about 9,000 altogether on dial-up, DSL, cable and wireless.

But wireless contributes 9.2 per cent of annual revenues—about $2 million—and it's growing faster than other access modes.

"It was business customers mostly at first," general manager Donald Miller says of the wireless market. "But now they probably only represent five percent. The residential customers have been taking to it like crazy."

The company's low-end offering is a 128-Kbps service. It also has a 256-Kbps burstable service.

Uncommon structures
Northwest has a novel distance-based pricing structure. Customers within 15 miles of a service depot pay $39.95 a month, everybody else pays $44.95. The large distances involved in sparsely-populated rural northwest Iowa means truck rolls—"windshield time," as Miller puts it—is an even more important cost factor than other places.

In a few of its markets where competitors are offering 256-Kbps or 512-Kbps service, Northwest is at least initially at a disadvantage with its 128-Kbps offering, Miller admits. But the company believes it can ultimately offer a higher quality service and more consistent performance by constraining bandwidth.

This is borne out by customers who try one of the competitors' supposedly faster services and then switch to Northwest—or in some cases, back to Northwest—because of the poor service and performance they receive.

"Some of these customers are saying ours is faster at 128 Kbps than what they were getting with 256 Kbps [from competitors]," Miller says. "It really goes back to what you've got in the backbone."

Northwest initially deployed 2.4 GHz equipment for local loops and a mix of 2.4 and 5.8 GHz wireless and wireline links for the backbone.

It recently began deploying 900 MHz non-line-of-sight (NLOS) LMS4000 equipment from Toronto-based WaveRider Communications Inc. in communities where it couldn't reach customers because of line of sight problems. (Iowa being fairly flat, trees are the main problem, Miller explains.)

Northwest is offering 900 MHz-based service in two communities so far. It will deploy the technology in another three markets later this year, and in an as yet undetermined number next year.

The service has been a success, with 45 new customers hooked up since the launch a few weeks ago, and another 20 on a waiting list. And there are lots more customers out there, Miller is convinced.

"We didn't anticipate this level of demand right away, so now we're having some problems right now getting equipment [from WaveRider]," he says.

That's about his only complaint about the technology, though. In general it has delivered exactly what the company wanted.

"We love the reliability," Miller says. "There are no external holes [made] in the house [when installing the antenna] and there are no icing or wind problems, which there are with 2.4."

Supportive services
Installations have been a breeze—most, as expected, indoors. Northwest still sends out a technician—partly because it happens that employees from its installation team live in both communities served. But as the company starts deploying in towns further afield, it will consider trying user installation, Miller says. Other LMS4000 ISPs have done this successfully.

In most of Northwest's markets, it has at least some competition, the two biggest broadband competitors being multi-channel multi-point distribution system (MMDS) provider Evertek Inc. and regional cable modem service provider Mediacom Communications Corp. Miller guesstimates his company's market share at between 25 and 60 percent. It varies from market to market depending on the competition and how long Northwest has been in the community.

"We have a fairly good customer base that we've been able to keep for a long time," he notes.

How does Northwest hold off its bigger, deeper-pocketed competitors.

"I think customer service is the key," Miller says. "That's what gets most of the credit from customers—having a good technical support line. We don't run 24-by-7, but we do have people who are really concerned [about providing service]. That's the one [factor] that keeps bringing [customers] back to us. We get e-mails from them telling us so."

More broadband competition is coming, he says—a cable modem service provider in Emmetsburg, for example. Northwest will push the fact that it's a local Iowa company. As Miller points out, "[our customers] don't have a long way to go to get to our headquarters building,"

Money-wise
Another factor in Northwest's success is that like many other small, community LECs, it has always been fiscally conservative. The 900 MHz roll-out, for example, is being funded entirely from receivables from the Internet business. The company has no plans to seek outside financing for further expansion.

But then it doesn't have terribly ambitious plans for expansion either. It will probably expend most of its effort and capital in the short and medium terms on installing 900 MHz gear in markets where it already has 2.4 GHz infrastructure.

This is in part because it wants to catch the customers it can't reach with 2.4 GHz, but also partly because it can deploy inexpensively using the same towers (often grain elevators) as it uses for the 2.4 GHz antennas where it already has already paid for access rights.

If it does begin to expand out of its current operating area it will probably be using the 900 MHz technology, not 2.4 GHz, Miller says.

In the meantime, the Internet services operation is close to profitability. It is already cash-flow positive, but funding the start-up of a Web site development service—and before that the 900 MHz launch—has held it back from reaching break-even overall, Miller explains.

Not bad for a company that grew from a footprint of 23 square miles.

—End